Wiping Out Your Debt

If your debt looks like it hasn't budged in the past year despite making payments, maybe it's time to think about changing your financial plan. Quiz yourself on the fact and fiction of debt, and maybe you'll be inspired to charge ahead against the charges and start setting goals for what you want to see in your balances next year.

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Question 1 of 20

All debt is bad debt.

fact

fiction

Home mortgages and college loans are examples of good debt. Owning a home and having a college degree can pay off in the long term because they generally have lasting value.

almost fact

Question 2 of 20

Payday loans target the wealthy, who can afford the 300 to 400 percent interest.

fact

fiction

Payday loan centers are often found in low-income areas, where living from paycheck to paycheck and without credit creates a need for cash before payday. Loan centers will hold a check until money is available, charging a high percentage of every dollar to do so.

almost fact

Question 3 of 20

Consumer credit card debt is increasing with the employment and financial woes of Americans in recent years.

fact

fiction

Though it would seem likely that credit card debt would rise with economic trouble, according to a September 2010 Federal Reserve Board release, it decreased 1.75 percent.

almost fact

Question 4 of 20

You have to keep a credit card balance to maintain a good credit rating.

fact

fiction

While having a balance and paying it off on time helps establish credit, paying off the card in full each month makes for good history in a credit report. Keeping high balances can even hurt credit ratings.

almost fact

Question 5 of 20

Your debt will die with you.

fact

fiction

almost fact

Surviving family members may not have to cover your legacy of credit card spending, but house payments and funeral costs may keep your memory alive in the form of bills and debt collection.

Question 6 of 20

Paying off personal debt will hurt the economy.

fact

fiction

almost fact

If everyone worked to pay off debt at the same time, spending would decrease, impacting the economy, but individual efforts to spend less and save more are less likely to have national impact. Economically depressed regions where people have no money to spend, however, do hurt economies at the local level.

Question 7 of 20

Americans need to wipe out debt more than people in other countries.

fact

fiction

Worldwide personal debt is on the rise, and governments in Japan, France and the United Kingdom, among others, are stepping in to add regulations related to consumer spending.

almost fact

Question 8 of 20

Cutting out a cup of café coffee a day is not enough to make a dent in debt.

fact

fiction

Even skipping a $1.50 gas station cup o' Joe each day of the work week could free up $400 a month to put toward your current debt load. Forsaking a $3 specialty drink on business days can save $780 (or 12 $65 payments toward a credit card balance or major purchase).

almost fact

Question 9 of 20

Cutting out that same cup of coffee outside of the United States, say, in Moscow, Russia, won’t matter as much.

fact

fiction

With the world's most expensive cup of coffee in 2008 -- at more than $10 -- Russians may want to buy a home coffee press and save more than $2,500 per year.

almost fact

Question 10 of 20

People in the United States have been saving more money over the last two decades to avoid falling into debt.

fact

fiction

Though some data shows that savings are slightly up in one quarter of 2010, historically, savings continues to go down decade after decade, hovering around 6 percent of income in recent years.

almost fact

Question 11 of 20

Billionaire Donald Trump declared personal bankruptcy in the 1990s.

fact

fiction

Though he owed nearly a billion dollars in debt in the 1990s, The Donald never had to declare personal bankruptcy. He moved holdings around and made sales to pay back the banks.

almost fact

Question 12 of 20

Credit card companies in the United States have to let consumers know they are raising rates or adding fees at least 10 days in advance.

fact

fiction

almost fact

The Credit Card Disclosure Accountability Act of 2009 does require that lenders notify consumers before issuing new fees and higher rates, but the notice has to be 45 days in advance.

Question 13 of 20

Your interest rates on debt will stay the same if you pay on time.

fact

fiction

almost fact

If you lock in an interest rate with a fixed mortgage, it stays the same, but other interest can increase depending on the balances you keep, changes in bank holdings and your spending patterns.

Question 14 of 20

About 40 percent of Americans spend more than they make.

fact

About 43 percent of people spend more than they make, meaning close to half of all American live outside of their means.

fiction

almost fact

Question 15 of 20

In Japan, lenders cannot give money to borrowers who have more than a third of yearly income tied into debt already.

fact

Government oversight of lending practices was stepped up in 2010.

fiction

almost fact

Question 16 of 20

If you are a "valued customer," you will get better offers from lending institutions.

fact

fiction

almost fact

Offers leading to more interest focus on the lender, while notices of lowered or fixed low rates value the customer. You may be valued for the amount of interest you pay a company, and they may return the "favor" by offering to let you skip a payment or borrow more, which creates more interest for you, valued customer.

Question 17 of 20

Only the rich can buy houses without mortgage payments.

fact

fiction

It may be easier for the wealthy, but it is not exclusive to those with big paychecks. Some budget the expense when young to avoid the payments later, and others buy fixer-uppers at very low prices and turn them into lifelong homes.

almost fact

Question 18 of 20

It is always a good idea to buy in bulk and to use coupons.

fact

fiction

almost fact

It's not always smart to shop for produce and electronics in the same place. Without discipline, bulk buying centers can lead to more temptation and spending. Coupons also require discipline in buying what you know you will use and enjoy.

Question 19 of 20

Skipping a mortgage payment each year will help build savings.

fact

fiction

Skipping a payment simply adds that payment to the end of your mortgage term, lengthening the time you are paying interest. A skipped payment doesn’t mean skipped interest, and many skipped payments add years and dollars owed.

almost fact

Question 20 of 20

Personal debt between friends can be a good thing.

fact

fiction

almost fact

Being indebted to, or grateful for, a friend who keeps you from a bad financial decision is the kind of debt you don’t want to wipe out.